It is often said that pensions never stand still.
Even in today’s climate, when the political focus is firmly turned on Brexit, there are still multiple changes going through the pension legislative and regulation mill.
It can be easy to miss some areas of development, especially if they haven’t yet resulted in a firm policy change.
Effective competition in non-workplace pensions is one such example.
The FCA’s latest paper – a feedback statement (FS19/5) – was published in late July at the same time as its consultation on defined benefit transfers, and the final rules for the retirement outcomes review.
The non-workplace pension work has slipped somewhat under the radar.
However, it has the potential to be a very important piece of FCA regulation for financial advisers and planners, and it is worth being aware of the emerging debate.
What is the non-workplace pension market?
Over the last two years the FCA has been gathering information about the non-workplace pension market, with a view to establishing whether it is operating effectively and competitively.
The non-workplace pension market is really all individual pensions – ranging from older-style contracts such as S226 Retirement Annuities and Section 32 buyout bonds, through stakeholder pensions and older-style individual pensions, right through to self invested personal pensions (Sipps) both ‘streamlined’ and ‘complex’.
This is a massive market.
There are 12.7 million individual pension accounts administered by more than 100 providers.
The FCA estimates non-workplace pension providers administer £470bn of assets - more than double the size of the market for contract-based defined contribution workplace pensions.
Individual personal pensions dominate the market.
They account for over 70 per cent of all accounts and over 50 per cent of assets.
However, 89 per cent of individual personal pensions – and 44 per cent of stakeholder pension plans - are in schemes that are closed to new business.
The FCA expressed concern with several themes emerging from its research.
Before we go on to discuss the FCA’s proposed remedies for non-workplace pensions, it is worth recapping other recent regulatory developments to address high charges and value for money within pensions.
Broadly, in the workplace market, all employers have to automatically enrol relevant employees into a qualifying workplace pension scheme.
These schemes have to meet a set of criteria including, for defined contribution schemes, a charge cap of 0.75 per cent a year and a default investment option.
The FCA also demands firms operating workplace personal pension schemes establish and maintain Independent Governance Committees (IGCs) to scrutinise the value for money offered by their scheme.
FCA review on retirement outcomes
Another big piece of recent regulation policy is the FCA’s Retirement Outcomes Review.
This concentrates on helping non-advised customers accessing their pensions, but has consequences for all savers.
Over the next year, it will introduce changes so: